Personal Finances, Friends or Foes

After accompanying my godmother through the ordeal of her messy finances, I came to think about how difficult is actually for any regular person to keep their personal finances in check and away from becoming a raging monster that takes over their lives and fills them with fear and endless hopelessness.

The thing about personal finances is that they mix two things that generate quite different emotions in people. From one side we've got money, which is a thing we love to have in order to spend it (and fear to owe!), an from the other side we have numbers, and a large part of people (maybe most of them) generally dislike having to deal with them. Ofter there's also a kind of dread at the result of adding or substracting long rows of numbers. Certainly it can be fun to go shopping and buy everything you  desire, but it's quite something different to then start crunching numbers and add up all  your shopping sprees and card-flashing experiences to find out how much do you own in your credit card (and whether you are capable of paying it all out) or to realize you've gonr out of the black numbers and deep into the red.

You certainly don't need to be an elderly lady with memory problems, paying twice the same amenity bill or counting as her own debts the money she pays to others as well as the money paid to her. You could be any regular person from the street, with a good, stable income, a home, well dressed, with a car and looking as the poster image of middle-high class success, and yet you could be deep in a personal finance crisis simply because you decide to ignore things as basic as hoy much is really your household's income and what you spend in and how much you spend.

Credit cards and loans cab give us a fake sense of freedom or opportunities, where you do beleive you can spend far beyond what you make. However this is all money isn't yours and you must pay it back to the lender, and often at a given price, conveniently called interest rate. People loosing their homes and their whole lives due to debts often started the whole mess with credit cards or quick "consumer loans" that paid for these freedoms and a lifestyle they wanted but that they couldn't really afford,a nd all those expenses quickly rose far beyond their paying possibilities. 

Personal finances start with a very simple base block: what's your income and what you need to pay. Don't consider the limit of your credit card, or the loans you can take, the money you can beg from others, just your income. That's your limit. If you want happy, healthy personal finances, you won't trespass that number.

From there you need to take in consideration all those amounts you need to pay. This includes all your amenity bills, the payments on loans, insurances, taxes and similar payments you must do according to where you live. It's a good idea for those payments that occur on a periodicity different than the periodicity of your income (say you get paid once a month, and you have a tax you must pay once a year or an insurance you must pay quarterly, or a class you must pay twice a year and so on) to put away a proportional part of your income (as if you were making part payments!) so when the time comes to pay the amount you don't have to cut a larger chunk from that income, because you've saved part of it already, so the budget you planned won't take a swing to the jaw, and that month too you could be able to live and spend the same way you do it any other month.

You can apply the same principle for gifts, for instance. You can do it for the whole year, programming when you want to give a gift (birthdays, celebrations, Christmas) and how much you want to pay in each case, or you can do it only for really big time where buying gifts could eat up your income, like Christmas. Whatever the case you want to consider, plan ahead! Make at home a gift fund and when the time comes to buy presents, you can tap that source and still keep your ordinary experiences as usual. Now, if you do this, plan very well, and don't exceed your fund! If you have a general grift fund, and aunt Margaret's birthday is coming up, and you planned your fund considering you'll spend $20 or less on her gift, don't go spending $100!

However, lets go back a little, because before you start planning for gift funds, you must consider other important matters such as food, medicine, transportation and similar matters you need frequently (this means more than twice a week, and every week!). Consider carefully how much money you plan to spend weekly on each of these items (yes, piece of advice, visualize these weekly instead of monthly or quarterly or any other period! There can be variations through the week, as usually our weekends are different from our work days - or however you have them - and sometimes we have a "date night" fixed or a "friends night"), and then consider for each of them as many alternatives as they are realistically available for you. Chic or not chic are not valid considerations when you are talking about your money, specially when you can easily bypass spending over 80€ on a lunch at a posh restaurant with coworkers by eating brought homemade meals that took you back 0,50€, simply by saying that you prefer to make sure what really goes into what you eat. So yes, really consider leaving the car at home for work and take the public transportation if that proves more cost efficient (waking up earlier doesn't cost you a dime, but if your personal safety is at risk, fuck it, take the car!), and carrying your healthy homemade meals to the office, or selecting other restaurant options that might prove to be less expensive. I encourage you also to investigate restaurants in the are with delievery service. They might be affordable - at least a couple of times, if you don't want to carry your tupperware all the time, and it has the benefit of having a menu that helps you do the numbers when you do your budget!

Keep your recipes and keep them all in one place, in orderly fashion, and make a habit out of  checking your  financial progress week after week, not just at the end of the month. This way you can recalculate in the case of an unexpected event and have time to correct your numbers, rebalance your budget and close the month in black. Preventive and corrective actions are better than trying to fix the crisis when there's nothing to be done but pay and you have no idea how.

Finally , always leave a margin for any unexpected expense - here's where you can tap when you need to apply your corrective action! Otherwise you tap on your food money or your transportation, your meds or your yoga class!. Also try to create an Emergency Fund. These would be savings that you are not touching nor you plan to spend on something in the future, but rather some money you put away in case you financial situation changes (you lose your job, you have a child and need to send them to a college much more expensive than you originally planned for, you have a medical issue or someone in your family, etc.). These emergency funds can become real lifesavers, and I can testify of that as I'm currently living out of mine. When you have an income, a fix amount - as much as you can afford - or not so fix, but as much as you can afford - and that could be what remains of your safety margin, if you haven't spent it - could go to a separate account at the bank, or any safe option you can think of. 

Don't buy stock on it! That's your Emergency Money, not your gambling money. It's money you are not supposed to lose, and in the market, in stocks, everything can be lost.

Seek to prepare a budget such that's realistic, that you can keep, that won't starve you, and stick to it! And if you can save withing that budget - for your Emergency Fund, for retirement, for a new plasma TV - better! But whatever you do, whatever budget you plan, RESPECT YOUR INCOME!

You can track and do your finances and your budget on a whiteboard on the kitchen, keep them in a notebook in a drawer or anyway it suits you, any way it works for You. I would personally recommend you to keep your finances on an Excel sheet, and depending on how good you are with Excel you can have it do a lot of things for you (add, substract, calculate how much is left for every month, how much you've saved, how much you owe, how much time could it take you to pay back a debt or how much time would it take you to reach an amount in savings to get something you want...), but that's me.

Please take a minute to consider your personal finances, face the skeletons in your wallet and dare to be financially happy and healthy.